I am 60 years old. I have a surplus of ₹30 lakh. I am not looking at immediate monthly returns. I would like to get appreciation, and the investment to be safe. The period of investment is two years. Where should I invest?

KM

Your time horizon is short and you want the investment to be safe. This rules out equity mutual funds as an option. An investment in equity MFs requires a longer term horizon (at least five years) as it comes with volatility and risk to capital, especially in the short run. In the long term, though, well-run equity MFs can be quite rewarding.

Asset classes such as gold and real estate are also a no-go in your case. There is no saying with certainty where gold and realty will head in the next two years. Also, real estate can be quite an illiquid asset.

So, you will have to look at fixed-income options. With high returns of 8.6 per cent currently, tax breaks and complete safety, the post office Senior Citizens Savings Scheme (SCSS) would have been an ideal choice to deploy up to ₹15 lakh. But this is off the list since the tenure in SCSS is five years and the interest is paid out quarterly. This does not fit in with your requirement of capital appreciation in two years.

Since you are not seeking regular monthly returns, you should look for a cumulative investment option with a two-year tenure. The short horizon also eliminates other attractive tax-efficient cumulative small savings schemes such as the five-year NSC (National Savings Certificate) and the 15-year PPF (Public Provident Fund), both with an interest rate of 7.9 per cent currently.

The choice thus narrows down to fixed deposits with banks, corporate FDs and non-convertible debentures (NCDs), and debt mutual funds, where you can opt for cumulative schemes with two-year maturity. Among bank FDs, small finance banks offer the best rates. For a two-year tenure, banks such as AU, Ujjivan, Equitas, Suryoday, Jana and Fincare currently offer 8.10-8.75 per cent. Many of these banks also offer an extra interest rate of 0.25-0.5 per cent for senior citizens.

These banks are regulated by the RBI, and there is a deposit cover of ₹1 lakh in all of them. So, there is not much to worry about the safety aspect of these banks. Being quite young, these banks do not have a wide presence yet and you might have to do some legwork opening your FDs with them. In big cities though, the representatives of many of these banks come to the customers’ doorstep to help them open deposits. Some private banks such as IDFC FIRST Bank also offer attractive rates (up to 8 per cent for a two-year tenure) plus extra 0.25-0.5 per cent for senior citizens.

Among corporate FDs, go for those with the highest credit rating of AAA. You can consider deposits offered by companies such as Bajaj Finance, Shriram Transport Finance and Mahindra Finance which offer 8.05-8.5 per cent plus an additional rate of 0.25 per cent for senior citizens. You can also consider highest-rated NCDs with attractive rates offered by reputed companies when their primary issues open. Buying these NCDs in the secondary market (listed on exchanges) could be difficult, given the poor liquidity in the market.

Among debt funds, you can consider well-run funds from relatively safe categories such as corporate bond funds and banking & PSU debt funds. These funds invest a chunk of their portfolio in high-rated debt paper, and hence carry relatively low risk. Among the funds that have a good track record are Axis and Kotak (Banking & PSU Debt funds), and Aditya Birla Sun Life and Kotak (Corporate Bond funds).

On tax-efficiency, interest from bank accounts for senior citizens is not taxed up to ₹50,000 a year. Debt funds become tax-efficient when they are held for at least 36 months (three years); that’s when the long-term capital gain on the debt fund is taxed at 20 per cent after indexation. In your case, since the investment is for two years, there will be no tax advantage on the debt fund investment.

Spread your ₹30 lakh across the above-mentioned investments and entities to the extent you are comfortable with. This will reduce concentration risk — the risk of heavy loss if an investment goes bad. Don’t put all your eggs in one basket. That said, don’t overdo the diversification mantra — it may become unwieldy for you to manage.

Send your queries to mf@thehindu.co.in